2021 (4) TMI 226 - HC - Central Excise

Judicial Review of Show Cause Notice (SCN) - whether refunds granted earlier pursuant to the Judgment of the Apex Court can be considered to be refunds erroneously granted in view of the subsequent Judgment of the Apex Court - Recovery of refunded Education Cess and Secondary and Higher Education Cess - Section 11A(i) of the Central Excise Act, 1944 - Interest in terms of Section 11AA of the Act - Area based exemption ELD THAT - The term erroneous any error deviating from law. A change of law subsequently would not make an action taken earlier by Quasi Judicial Authority in terms of law as it stood then, to be held to be erroneous so as to enable the Departmental Officer to invoke powers under Section 11A of the Central Excise Act. On perusal of Section 11A reveals that the power under Section 11A for recovery of duties not levied or not paid or short levied or short paid or erroneously refunded will be available to the departmental Officer only on the decisions mentioned in Sub-section (4) unless the concerned departmental Officer is satisfied that the refund granted earlier was because of any or all of the conditions mentioned under sub-Section (4), the refunds cannot be treated to be erroneous. The mandate of section requires the departmental Officer to apply its mind and only upon satisfaction of the conditions mentioned under sub-Section (4) of Section 11A can any refund granted earlier be treated to have been erroneously. It can be held that the concerned departmental Officer exercising power under Section 11A of the Central Excise Act must arrive at finding that the earlier order/refunds as have been granted in the present proceedings, were contrary to the law and therefore, erroneous and that the same are required to be reopened or recovered by invoking the powers under Section 11A. The refunds were granted by the Department in terms of the Judgment in M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT . As discussed above, the Department accepted the Judgment of the Apex Court in M/S SRD Nutrients Private Limited (supra) and sanctioned the refunds. As such, the contention of the Department that the refunds granted earlier were erroneous and could be recovered under Section 11A cannot be accepted. Binding effect of a Judgment and Principle of Res Judicata It is also not disputed that in respect of the some of the petitioners since the refunds were not granted, writ petitions were filed before this Court and this Court by orders on different dates held that the petitioners were entitled to refunds claimed in terms of the judgment of the Apex Court in M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT . There is no appeal or review filed in respect of these orders also which have been since attained finality. Accordingly, the refunds which were granted by the Department were pursuant to judicial proceedings before the Apex Court and/or the Gauhati High Court, the refunds sanctioned/released were on the basis of orders passed by the Apex Court and/or the Gauhati High Court. Consequently, once a judgment or judicial order is passed by a Court of law against the Department, the remedy available to the Department is by way of an appeal to a higher Court or review. This Court holds that the refund granted/sanctioned earlier in terms of the Judgment of the Apex Court rendered in M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT as well as in terms of orders passed by this Court directing such refunds of Education Cess and Secondary and Higher Education Cess in terms of M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT , cannot be revoked co-laterally by a Quasi Judicial Authority of the Department without taking recourse to the statutory and/or judicial remedies available to the Department. In view of dismissal of the earlier review petition filed by the Department against the Judgment of the Apex Court in M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT and also in view that no appeal or review having been preferred against orders of this Court directing entitlement of refund of Education Cess and Secondary and Higher Education Cess to the petitioners, the issue between the parties to the lis having attained finality, the later Judgment of the Apex Court in M/S Unicorn Industries 2019 (12) TMI 286 - SUPREME COURT holding M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT to be per incuriam, will not permit the Department to unilaterally revoke or re-open the issue without taking recourse to the remedies available to them before a judicial forum. Judicial Review in Show Cause Notice There is another aspect that needs to be dealt with in the present proceedings. The petitioners before this Court in the present proceedings are questioning the show cause notices issued by the department. Although, the High Court in exercise of judicial review under Article 226 of the Constitution of India would not ordinarily interfere with the show cause notices issued, however, where a show cause notice has been issued by an authority wholly without jurisdiction or by way of wrongful usurpation of power, the person aggrieved need not be relegated to avail any statutory alternative remedy available - In the facts of the present case, there is no dispute that the refunds granted earlier to the petitioners were in pursuance to judicial orders passed by the Apex Court in M/S SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT and/or orders passed by this Court in writ applications filed by some of the petitioners. As held by the Apex Court, declaration of judgment to be rendered per incuriam by latter judgment will not upset the binding effect of the judgment between the litigating parties. As the department sanctioned the refunds in terms of such orders passed in judicial proceedings between the assessees and the department, the same having attained finality cannot be reopened except by way of the Department taking recourse to available judicial remedies. Unless, such remedies are availed of, attempting to re-open orders passed by Department officers by collaterally by taking recourse to Section 11A cannot be permitted. Thus, the show cause notices issued are required to be held to have been issued without any jurisdiction and by wrong interpretation of the powers under Section 11A read with Section 11AA and therefore, the same are required to be set aside. Petition allowed.

Summary

Issues Involved:
1. Legality of Demand-cum-show cause notices issued by the Central Excise Authority.
2. Interpretation of the Apex Court judgments in SRD Nutrients Pvt. Ltd. and Unicorn Industries.
3. Applicability of Section 11A of the Central Excise Act, 1944.
4. Effect of judgments declared "per incuriam."
5. Binding nature of departmental circulars.
6. Judicial review of show cause notices.

Issue-wise Detailed Analysis:

1. Legality of Demand-cum-show cause notices issued by the Central Excise Authority:
The petitioners challenged the Demand-cum-show cause notices issued by the Central Excise Authority, directing them to show cause why the amount of Education Cess and Secondary and Higher Education Cess, which were refunded to them, should not be recovered under Section 11A(i) of the Central Excise Act, 1944. The notices were based on the Apex Court's judgment in Unicorn Industries, which declared the earlier judgment in SRD Nutrients Pvt. Ltd. as "per incuriam." The court held that the refunds granted earlier pursuant to the judgment in SRD Nutrients cannot be considered erroneous merely because the judgment was later declared "per incuriam."

2. Interpretation of the Apex Court judgments in SRD Nutrients Pvt. Ltd. and Unicorn Industries:
The Apex Court in SRD Nutrients Pvt. Ltd. held that the appellants were entitled to a refund of Education Cess and Secondary and Higher Education Cess paid along with excise duty, as the excise duty itself was exempted from levy. However, in Unicorn Industries, the Apex Court declared the judgment in SRD Nutrients as "per incuriam" for not considering earlier judgments in Modi Rubber and Rita Textiles. The court in the present case held that the declaration of a judgment as "per incuriam" does not retrospectively alter the binding effect of the earlier judgment or the refunds granted under it.

3. Applicability of Section 11A of the Central Excise Act, 1944:
Section 11A allows for the recovery of duties not levied or paid, short-levied or short-paid, or erroneously refunded. The court emphasized that the power under Section 11A can only be invoked upon fulfillment of the conditions specified in Sub-section 4, such as fraud, collusion, willful misstatement, suppression of facts, or contravention of provisions with the intent to evade duty. The court found that the conditions for invoking Section 11A were not met in this case, as the refunds were granted based on the then-prevailing law laid down by the Apex Court in SRD Nutrients.

4. Effect of judgments declared "per incuriam":
The court held that the declaration of a judgment as "per incuriam" merely denudes it of its precedent value but does not affect the binding nature of the judgment between the parties to the original case. The refunds granted pursuant to the judgment in SRD Nutrients, which had attained finality, cannot be reopened or treated as erroneous solely on the basis of the subsequent judgment in Unicorn Industries.

5. Binding nature of departmental circulars:
The petitioners argued that the actions of the department were contrary to departmental circulars issued on 09.01.2020, which instructed officers to contest matters pending before courts by filing statutory appeals, writ appeals, or review petitions. The court held that departmental circulars are binding on the officers of the department and that the impugned show cause notices were issued in contravention of these circulars.

6. Judicial review of show cause notices:
The court reiterated that while it would not ordinarily interfere with show cause notices, it can do so when the notices are issued wholly without jurisdiction or by wrongful usurpation of power. The court found that the impugned show cause notices were issued without jurisdiction and by misinterpreting the powers under Section 11A, and therefore, set them aside.

Conclusion:
The court quashed the impugned Demand-cum-show cause notices, holding that the refunds granted earlier pursuant to the judgment in SRD Nutrients cannot be considered erroneous merely because the judgment was later declared "per incuriam." The court emphasized that the binding effect of the earlier judgment remains conclusive unless reversed by an appeal or review, and departmental officers cannot unilaterally revoke refunds granted based on judicial orders. The writ petitions were allowed, and no costs were imposed.